Saving, investing or gambling

Well, you could put your money in a sock under the bed or try ‘Sure Thing’ in the 3.15 at Goodwood. What you do is in part to do with character as anything.

Where you place your money is about risk and reward. Generally you will not achieve the second without the first but the first may not deliver the second. Risk is rather an odd word in the context of investment it is really to talk about the possibility of loss and loss has a great deal to do with time and timing. Are equities risky – yes, they are, especially day to day, but perhaps not if held for 20 years. Is cash safe – well, yes day to day, but perhaps not after 20 years.

Stock markets in the shorter term are largely driven by greed and fear but over the longer term by more ‘true’ forces – efficiency, value, demand etc. Cash holds value short but is undermined by inflation long. If it is one of the jobs of Central Bankers to maintain the value of the currency in real terms arguably they fail but perhaps the term failure is inappropriate if it is accepted that the long term depreciation of cash is an economic fact.

So what does one hold? A collection of assets probably and amongst other things property, fixed interest, cash, equity funds and the family furniture (but not if it came flat packed). A sound portfolio should provide for the short, medium and long term and be set up with reference to personal circumstances. ‘Risk’ should not be confused with volatility over the investment period envisaged.

Back to the first paragraph and contrary to accepted views the sock could turn out to be worse than Goodwood, but then again............

There’s another trouble about theories: there’s always a hole in there somewhere if you look close enough – Mark Twain (Tom Sawyer Abroad)

Europe and the Euro

The issues which came to a head in 2007 roll on and what was personal, corporate and sovereign debt has morphed into international cross border debt problems.  The Euro issue is very difficult to call essentially as this is changes between economic and political issues and caught up in this are the current leaders in European politics, something bequeathed to them by their predecessors who did not, it seems, look too thoroughly at all the possible outcomes. 

It would appear that a good number of those with the power in the Euro group believe that this is an issue which can be dealt with by effecting repairs to the system with more cash and/or debt but at this point one cannot easily see how this works unless the argument is that this should be viewed over a much longer time frame. The problem with this is that the markets are much more immediate. At this point one can only see one of two possible outcomes; a much more unified group consisting of the 17 Euro members, effectively financed by Germany with their financial positions being more tightly scrutinised, or some form of break up/re-alignment of the Euro Group itself. In the shorter terms whilst more debt (banking and sovereign) is likely to hit the banks the markets cannot settle and until a structure is put forward which is seen to be sustainable volatility will continue. Interesting the overall ‘European area’ external debt burden – in percentage terms – is less than that of either the US and UK but just now markets seem more content with Sterling and the US $. 

We are here and it is now. Further than that all human knowledge is moonshine – H L Mencken